Prime Minister Bill English admits wage growth isn't 'hot'; Says businesses need to increase pay significantly before complaining about skills shortages

Prime Minster Bill English says businesses need to be willing to put cash on the table to attract the right talent, before complaining about skills shortages.

“I’ll believe businesses when they tell me they increased the pay significantly and still couldn’t find someone,” he told those at a Trans-Tasman Business Circle lunch on Friday.

“The general wage data tells us wage growth is better than inflation, but [I] certainly wouldn’t describe it as ‘hot’.”

Annual wage inflation held steady at 1.6% in the March quarter, with growth in private sector wages falling to their lowest point since the June 2010 quarter.

While the consumer price index rose 2.2% year-on-year in the March quarter, wage growth has been higher than inflation in previous quarters.

English said he’s found businesses are increasingly “taking responsibility” for filling any skills shortages.

“It’s not the government’s job to run your machine, or pick your fruit, or run your hotel. It’s not our job to staff those places. It’s your job.

“I see more and more businesses who understand, it’s a bit of a departure from the traditional kiwi model that they need to invest in a supply chain, a supply line, of qualified skilled people.

“For some of them that means… going to the local secondary school, so people know your industry is there. For some of them it means understanding the migration system. For some of them it means investing more in your own people…

“Finally sometimes, you’ve got to pay more.”

Questioned by media after his speech, English wouldn’t go so far as to explicitly saying firms aren’t paying their staff enough.

Yet he said that as they talked to the government about what it could do to help fill skills shortages, he expected them to do their bit and “make themselves more attractive to the skills that are around”.

He said the construction sector was doing so, experiencing 20% compound wage growth per year.

“The government can take direct action around getting more young people to the start line and… adapting the migration criteria,” he said.

“[But firms] have a role, which is to make themselves attractive businesses to work for.”

Pressed on why wage growth is muted, English said: “I think it has just been the large number of people showing up to the labour market.

“You’ve had a lot of older people staying on working because of the opportunities available. We’ve had skilled migrants coming in, filling the gaps. A lot of high levels of participation by almost any group you can find.

“Even now people would say there’s still people outside the labour market who’d like to get in there. The economy’s generating a lot of jobs, but there’s a lot of people showing up for those jobs.”

Asked about the extent to which an uptick in migration in particular has contributed to subdued wage growth, English said: “We see the skilled migrants filling the gaps. That’s what you pick up from the businesses who are employing them; that they’re employing someone from offshore because they can’t get locals to fill the gaps. It’s all about the fine tuning, making sure we get the skills we need.”

All this said, English expects wage growth to rise over time.

“We’ve been through a period of very low interest rates, very low inflation. So you haven’t see the same pressure on wages. If those things change, the pressure on wages will change.”

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43 Comments

How times have radically changed.
Governments now trying to encourage inflation and wage inflation.
Yet for 30 years they were desperately stomping on all signs of inflation.

Economics 101:
Consistently high corporate profits in a low wage economy result in deteriorating standard of living. Example US, India, China where a greater section of the labour market tends to be underpaid. More income and wealth for the richest does not translate into economic growth.
Moderate profits in high-income economies tend to do better in standard of living measures. Germany, Switzerland, Denmark etc. economies run on a high-paid, well-trained labour force. Higher wages translate into more consumption due to marginal utility of money.
A lower to middle class person wishes to buy but cannot afford several goods and services but a wealthy class individual can afford many but wishes to buy some - Keynesian economics.

Comment of the year:
"Consistently high corporate profits in a low wage economy result in deteriorating standard of living"
Hence the need for WFF, a kind of payback/acknowledgment.

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Well... where to start with this... I nearly sprayed Syrah all over the keyboard on seeing the headline... Pressed on why wage growth is muted, English said: “I think it has just been the large number of people showing up to the labour market". Umm yes... and yes, it is the job of the govt to assist industry in training/skills education, not just "import skills".... Wage growth is 'not' better than inflation especially if you take into account "user pays " that govt?council will no longer fund... You have allowed housing to get so out of whack, your budget has to pay landlords... And "getting the skills we need" dont make me laugh...

I can see an Onion headline here: Government suddenly changes stance and starts saying voter friendly things come election year.

Exactly what I was thinking, up to a few months ago young people where on drugs and unemployable. Come election time they admit wage growth has been very disappointing. After the election we can expect a pivot again?

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The 2010’s seem like the long decade of lies.

  • Government talk: Would like wage inflation
  • Government Action: Actively pursue wage deflation via unskilled immigration, regressive taxation policy, cuts to government spending etc.
  • Central bank(s) talk: They see imminent interest rate rises (7 years ago)
  • Central bank(s) Action: 8 years of interest rates cuts, and monetary easing with no real sign of trajectory change.

Mmmh good. Bill finally of the view I been suggesting.

Has Bill been reading the comments on social media do you think?

Huh. Ain't that a thing. Bill talking sense.

Will it translate into actual policy and incentives, or will the NZ Initiative take him out behind the woodshed?

The government seems to want wages to go up, to counteract the rising house prices. But if house prices fall, we won't then need to increase wages. Inflation is also very low, so why do wages need to go up that much. Increasing wages if only going to increase inflation anyway. Also with low inflation, the only real way IMO to increase wages, is to increase productivity. But we are competing in a low wage global economy these days.

Inflation is dead. Long live inflation.

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Translation - New Zealand is a low wage economy. Oh, that's right he already said that, even added it was an "advantage" http://www.stuff.co.nz/national/politics/4869938/Low-wages-advantage-for...

When you read the opinion piece you build up quite a bit of sympathy. You have in your mind this image of a sweet young lady trying to do her best.... but then you visit her blog, Posse, you get quite a different impression!

Yes, in her blog she says it like it is, unsanitised, whereas she has had to moderate her words for the likes of Stuff so that the luvvies don't get too offended. Thanks though for the steer, I have bookmarked her blog, looks very interesting.

She comes across as far stronger and more formidable in her blog. Good for her.

25% paye, 15% gst, and a further 28% corporate tax. Plus a multitude of other taxes. Maybe by reducing tax rates corporates could pay a bit more?

Yeah, but who to, my best guess would be to the shareholders as that is basically their raison d'etre

Simple answer - Buy shares. Oh, but you can't because the government has taxed, doubled taxed, and thrown an almighty lollie scramble.

That is another idea that needs further exploration

Its pretty easy to achieve. CEOs and upper upper management take a haircut, the workers get a bit more. Its the disparity between the haves and have nots.

An epiphany - just in time for the election. Gee, their pollsters must be telling them something.

Wakey wakey Bill, how long have a lot of us been trying to tell you this. I'm sick and tired of hearing about employers wanting the immigration taps left open at full tit, especially when the sectors involved are on minimum pay. Here's "our Bill" a year ago. www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=11622745

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Couldn't agree more, you can ALWAYS find the right staff, its just a question of paying the money. No sympathy for anyone who says they cannot find someone qualified, perhaps its the fact your paying peanuts.

tell that to my boss, 5 months he has been looking, he wants a kiwi with experience but to only pay the market rate which has come down over the last few years as immigrants have taken a lot of the roles for cheaper money and forced the going rate down
his choices are poach one and pay 20% more or bite the bullet and pay the going rate which means he will end up with an immigrant.
so far he has played the waiting game hoping by luck with a couple of mergers happening he can snag one but time is running out
as a aside in my industry born and bred kiwis are now rare and would make up less than 30% of the workforce they are mostly older experienced, and once they leave there is no replacement for their knowledge
Gone are the days companies would take on juniors or cadets from the high schools and put them through training

"Gone are the days companies would take on juniors or cadets from the high schools and put them through training"

Combine that with the 3 month trial period you've got a lot less mobility in the skilled labor market.

Employers loved this 3 month trial period. Easier to fire, and better retention of current employers. But guess what more retention makes it harder to attract staff from other companies. And with out people shifting jobs, less staff are moving up the job ladder making senior staff harder to find.

Election year.

Lol

They certainly are flailing around incoherently.

It's a no Brainer if you vote national in again god help us cos no one else is gonna

In 1972 the average worker made enough to service their standard of living and had about $2,000 left over (to save for a deposit on a house?)
20 years later, 1992, the savings premium had evaporated - the average worker needed all their wage to sustain their standard of living.
Another 20 years on, 2012, borrowings of about $12,000 were need to supplement wages to sustain a (lessening?) standard of living.
Another 5 years on, 2017, and that borrowing requirement has run out to about $17,000.
No wonder consumers are cutting back, and as they do, the Negative Feedback Spiral, quickens....
http://www.oftwominds.com/photos2017/Debt-Cost-Of-Living5-17.png

Good on him, that does need to be said; especially to those who want an endless stream of cheap immigrants to keep their wage bills down because they are incapable of running their businesses otherwise.

But no where do I see a call to increase productivity. I.e achieving more with the same people. This is the only way to sustainably raise our true wealth. Cranking up wages alone is just going to :-
1 Redistribute some wealth which is long over due but of limited scope.
2 Beyond 1 it will just set off a wage/price inflation spiral. May be this is what they want to get themseves out of the housing affordability hole that they have created. This will also reward the house speculators and penalise the savers, which to me is immoral and no way to run an economy.

Productivity in NZ has languished for many years now and the government has done next to nothing to improve it, choosing instead to pursue an immigration/housing ponzie scheme to make it look as if they are successfully managing the economy. It is really disturbing that the opposition parties also have such shallow/invisible offerings on how to improve our productivity and real wealth.

Over the last few decades, the real capital flow has been with eurodollar finance to the offshoring of productive capacity.

By simple mathematics, businesses are no longer willing to afford labor. Before getting to that math, however, we need to be mindful that the “experts” are almost uniformly suggesting the opposite is true. Instead, we hear constantly of a labor shortage, often serious, whether due to Baby Boomers retiring, lazy Americans addicted to heroin, or the politics of immigration. The problem with all of these is wages, meaning that if there was a shortage, wages would be rising and rising rapidly.

The New York Times on Sunday published yet another of this type of account (they are becoming more frequent), blatantly headlining the piece, Lack of Workers, Not Work, Weighs on the Nation’s Economy. Focusing on anecdotes from Utah, you get all the familiar but unbacked tropes about the travails of employers who have things to do but can’t do them because they can’t find anyone. Read more

So National have allow the NZ cost of living to rampantly run out of control and rather than even trying to do anything about it, they now present this "Let them eat cake" attitude and continue to do nothing. Obviously they simply don't want to win the next election which isn't that far away Bill.

Simply put Bill; If you try to force companies particularly for the IT Sector to drastically up their wages to cope with out of control living costs then they'll will simply close shop and move else where in the world. That's what is currently happening.

If you can see what's been happening then the rest of the world can:-
https://betterdwelling.com/capital-controls-continue-halt-mainland-chine...
Quote from article: Markets That Target Chinese Buyers Are Showing Cracks

New Zealand saw foreign buyers propel the sleepy island into one of the hottest foreign buying markets through 2016. Just a few months later, real estate firms are reporting a noticeable lack of Mainland Chinese buyers. Australia also saw billions of real estate sold to Mainland Chinese buyers, which declined by over 50% just after the new controls were launched.

Sloppy governments tried to pad poor economic growth by attracting easy money from Mainland Chinese buyers. Now that they’ve disappeared, governments are in for a rude awakening: The economies they’ve neglected over the past two years are in worse shape, as are the locals who tried to keep up with wealthy migrants by spending credit and accumulating massive debt. Now that those migrants are gone, all we’re left with is overleveraged locals, and a number of overseas buyers that will struggle to continue making mortgage payments.

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What a f*cking joke. National lets hundreds of thousands of unneeded immigrants into the country to work minimum wage jobs under the guise that NZ workers are lazy and drugged up, then just before the election tells businesses to raise their salaries to attract NZ workers. They've deliberately created the problem that shouldn't have existed in the first place, and now are giving a "solution" to try and stay in power.

Does this mean companies offering these "entry level" jobs that I apply for that want a Masters degree and five years experience but pay $18 an hour will raise the salary. Fat chance. Why pay a decent wage to a Kiwi when some Pakastani or Indian will do it for $15?

Yep $15.75 an hour in Auckland is now unsustainable. By the time you pay your tax and transport costs out of that its not worth getting out of bed. Fine if your 20 and still living at home but your going nowhere in the long term on that. I would add however many companies can afford to pay more than that but don't because they DON'T HAVE TO with people willing to work for that sort of money so people should walk away and simply not take those jobs and they will be forced to increase the wages. You cannot take on those jobs knowing what they pay and then turn around and complain about it.

That'll be about right wildcard. Truth hurts eh.

Just read Gaynor's piece in the Herald this morning:

http://www.nzherald.co.nz/brian-gaynor/news/article.cfm?a_id=14&objectid...

Is that lack of IPO activity and indicator of the slow down in the business sector? If our economy was performing well, in an environment with cheap credit, shouldn't we see more IPO activity?

No this is just an indication that our market is too small, and that it is too costly to list.

Why are they low?

Bill importing many people to push them down.

Bill making taxpayers subsidise wages through the accommodation supplement and Working for Families.

"You’ve had a lot of older people staying on working because of the opportunities available." Ah no Bill, older people are staying in employment because deceptive politicians of all parties have consistently lied to the electorate for 30+ years by saying the Govt Super will be enough to live on. It isnt, it's a pittance at 60% of the average NZ wage (which is itself too low) and needs to double to move current retirees out of poverty.

What I think we've seen over these last nine years is death by a thousand pollsterings.

So Bill reckons the strategy to cover stupidly high property prices (bank mortgages and/or rent) is to leverage that burden straight onto employers in the form of wage inflation. He clearly assumes that all businesses have the fat to pay wage growth to balance out the stupid house price/income ratio, and the ability to pass those costs directly onto consumers. I would suggest that simply is not the case.

Business generate a lot of unavoidable tax (GST, PAYE, Income Tax etc). Property specuvestors generate what again?

Election options a) "suck the financial life out of everyone for bank debt servicing" vs B) "correct the property market back to a acceptable price to income ratios". Anyone promising DTis for the election?